Using a reverse mortgage to supplement income
As IRAs, 401ks and other retirement accounts have lost value due to the financial decline of the recent years, many seniors have lost a chunk of their retirement income. Thus, their accounts and assets are worth less but their living expenses have not decreased. This is a problem.
Many retirees spend the winter in Florida and then summer in other areas. While this was great in the past, due to their loss of income, it might not be feasible for them to continue this lifestyle right now. They can try to rent out their properties in Florida to supplement their income. They can also try to sell the properties, but don’t expect to get much for them due to the glut of foreclosures on the market in Florida right now. The other option that seniors can take advantage of is a reverse mortgage.
For the last ten years or so banks in Florida have been touting the benefits of reverse mortgages for seniors. A reverse mortgage allows a senior citizen to take out a mortgage against the value of his home. Unlike a home equity loan, the senior doesn’t have to make monthly payments to pay off the mortgage. Instead, the mortgages are paid off when the senior dies or moves out of the house. At that time the house is sold and the bank is repaid for the mortgage and any remaining proceeds from the sale go to the senior or his estate. This gives the senior money now that he needs to live off and allows for it to be paid back at his death.
There is a concern that banks might not be interested in these types of loans right now as housing prices are falling. They might be worried that the house won’t cover the cost of the mortgage at the senior’s death. However, these mortgages are backed by the government. In addition, Congress increased the amount that can be borrowed from a house from $417,000 to $625,000 this year. Another great feature of these loans is that the fees banks can charge are capped by the government. All in all, these mortgages can offer seniors another option to supplement their income if they need additional help.
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